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November 27, 2025

Stock in Focus – Alkane Resources

Jordan Lipson, Portfolio Manager, Cromwell Phoenix Global Opportunities Fund

Sitting on a Gold Mine

The Cromwell Phoenix Global Opportunity Fund’s mandate is simple but wide: to seek out attractive opportunities across the small-cap universe where securities trade at discounts to readily assessable net asset values (NAVs), or where special situations create strong risk-adjusted return potential. This allows us to go wherever opportunities may present. Towards the end of 2024 an opportunity presented to invest in gold miners. A fast-rising gold price and a muted response from gold miners led to a compelling investment opportunity. These purchases, along with a timely addition in May this year, meaningfully contributed to returns over the period.

Gold vs Gold Miners

When the price of gold goes up, gold miners benefit more than you may inherently think. This is because a mine is leveraged to the price of gold in a way simply owning gold bars isn’t. Despite the immense challenge of running a mining operation, the underlying economics are relatively simple. Costs include the energy, people, infrastructure and equipment it takes to get gold ore out of the ground (and often process it) and revenue is the amount purchasers pay for the gold. For the most part, the cost of extracting the gold does not change when the gold price does, while revenue is directly linked to the gold price. A simple example highlights just how much leverage a gold miner might have to the price of the shiny metal. Let’s say it costs $1,500 to extract an ounce of gold, and the price of gold is $2,000 per ounce. The miner will clearly make $500 for every ounce of gold it mines and sells. Now let’s say the price of gold increases by 50% to $3,000 per ounce. It still costs $1,500 per ounce to get the gold out of the ground¹ but now my pretax profit has increased by 3 times to $1,500 per ounce ($3,000 – $1,500) despite the gold price only increasing 50% (Figure 1).

This example is dramatically oversimplified and misses much nuance, but what naturally follows, is that when the gold price increases, the price of a gold miner should go up even more (all else equal). In the example in Figure 1, a 50% increase in the gold price has led to the mine becoming 200% more profitable. Figure 2 shows what actually happened in 2023 and 2024. Rebasing values to 100 as at the start of 2023, it shows returns for junior gold miners compared with returns of the gold price.

Figure 1

Figure 2

“Across 2023 and 2024 the price of gold rose 43% (in USD), whereas gold miners only rose ~17%.”

As can be seen above, across 2023 and 2024 the price of gold rose 43% (in USD), whereas gold miners only rose ~17%. This is the opposite of what would be expected to happen. Some of this relates to a more challenged cost environment, but that alone can’t explain this outcome. What happened next is shown in Figure 3. It expands on from Figure 2, beginning in 2023 and continuing until the end of the September 2025 quarter.

As can be seen, the environment for gold has been extremely conducive since the end of 2024. The gold price continued to rise, and gold miners have finally seen the upside leverage to the gold price reflected in their own share prices.

Figure 3

What happened?

Analysing exactly why gold miners underperformed the rally in the gold price initially is an imprecise activity, however observations can be made. It is worth noting that brokers provide widely available net asset values (NAVs) for gold miners. Often, they provide two; one using their own assumed gold price, and another assuming the current (or spot) gold price remains stable. At the end of 2024, NAVs using spot prices showed many gold miners trading at a price to NAV of less than 0.5. Official published NAVs, using broker predictions of future gold price, were much lower. This was a result of “expectations” of a lower future gold price. In reality, brokers are hesitant to quickly move assumptions when information changes. This would require constant republishing and changes of opinion, none of which is practical or in their interest. This is not a criticism, as their job is to provide analysis, information and generate trades, not necessarily to be a hands on investor. In the case of gold however, there is a liquid spot and futures market², which allows investors to observe the value of gold today and of the price at which it can be hedged in the future. This gold price can simply be utilised in a model to derive a valuation. The benefit of using a market-based gold price, relative to a single market participant’s expectation, is the “skin in the game”. The World Gold Council reports that over US$200 billion of gold is traded per day, and each buyer and seller is incentivised to maximise their own profit.

At the end of 2024, spot and futures prices were meaningfully higher than many broker estimates. To be fair, they were probably higher than many of the estimates in other investors’ financial models, however these models are not publicly available. With the gold price sustained at higher levels, the outcome was predictable. Brokers (and probably other investors) moved their gold price assumptions higher thereby increasing valuations. As the gold price continued to increase, this cycle continued, with assumptions and valuations consistently stuck in the past. The recent rally in gold miners reflects a catch up in those assumptions.

Alkane Resources

Alkane Resources has long been listed on the Australian Stock Exchange and has been a holding of the domestically focused Cromwell Phoenix Opportunities Fund for many years. In April 2025, Alkane announced a transformational merger of equals proposal with Canadian-listed Mandalay Resources. The transaction was structured to have Alkane acquire Mandalay Resources and for shareholders of Alkane to end up owning 45% of the combined business with Mandalay shareholders owning the remaining 55%. This provided an opportunity for this portfolio to purchase a position in Mandalay, which was trading at a small discount to the merger price implied by Alkane’s Australian share price, and more importantly a meaningful discount to the merged company’s NAV and our assessment of valuation. The merger was highly likely to close as the transaction was recommended by both sets of board members and supported by major shareholders.

The merger represented an attractive proposition for both sets of shareholders. Mandalay had struggled for market relevance, as a closely held stock, listed in Canada, with assets in Australia and Sweden. For Alkane, the merger transforms the business from a single-mine producer into a multi-mine company, reducing asset-specific risk and improving production and earnings resilience. Furthermore, Alkane’s operating results have been burdened by legacy hedging contracts, whereas Mandalay is unhedged, providing the combined group with more direct exposure to movements in the gold price. The increased scale of the combined company has facilitated greater investor interest and attracted meaningful passive investment inflows. Alkane was added to the ASX 300 Index in late September and also received an upweighting in the US$8 billion VanEck Junior Gold Miners ETF (GDXJ), reflecting its enhanced market capitalisation and improved free float. Furthermore, the combined company is being run by long-time Alkane CEO Nic Earner, for whom we have a great deal of respect.

The merger was approved and successfully closed in early August. The portfolio’s holding in Mandalay until August marginally detracted value relative to indices, however since August, the holding (in what is now the merged Alkane Resources) has returned almost 66% in CAD. The position has been trimmed as it has risen, however remains 3.0% of portfolio assets at period end.

Current positioning

With the recent rally in the price of gold miners, it is reasonable to wonder if they still represent an attractive investment opportunity. The answer in our view is broadly yes. The same biases that led to undervaluation in the past are still prevalent today as the gold price climbs higher. The portfolio has however been a net seller of these stocks for risk management reasons, as we do not wish to have too large an exposure to this one specific theme. The price to (spot) NAV of many gold stocks remains near 0.5, despite the strong performance. If current gold pricing holds, gold miners should produce strong profitability, cash flow and returns in the future.

As at period end, direct exposure to gold miners represents approximately 9.5% of the portfolio.

Footnotes

In reality, a strong gold market would lead to tighter labour market conditions and other factors that would increase the cost of mining, but this is small in comparison to the increase in profitability. There may also be a royalty associated the gold mined, which is a variable cost based on the gold price.
This is merely a market where a participant agrees to buy or sell a commodity at an agreed price at a point in the future. It can be used to speculate (or hedge) on the future price of the commodity. All things equal, a futures price should be the spot price adjusted for the time value of money and storage costs.

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November 27, 2025

Tracking the office recovery – five charts that tell the story

Colin Mackay, Research & Investment Strategy Manager, Cromwell Property Group

After a 19-year premiership drought, the Broncos have returned to the top of the rugby league totem pole. Another redemption story, not as long in the making, is underway in commercial real estate. Office was out of favour through the pandemic, weighed down by rising interest rates, subdued liquidity, and concerns that remote work would irreparably damage demand for space. Now, conditions are improving and sentiment is becoming more positive – and the proof is in the total return pudding. Below are five charts that highlight the recovery occurring in the office sector.

1. Asset prices appear to have bottomed

Office asset values across Australia fell -18% from late 2022 to the end of 2024. The devaluation cycle appears to have concluded, with appreciation of +1.2% recorded over the first half of 2025¹ . The downturn has created a compelling entry point for investors – office is currently providing a larger yield premium over the Australian 10-year Government Bond compared to the 30-year average.

The downturn has created a compelling entry point for investors – office is currently providing a larger yield premium over the Australian 10-year Government Bond compared to the 30-year average.

2. Investment performance is improving

Stable yields and ongoing income growth have contributed to an improvement in total return. Performance has been positive for the last two quarters, leading to the strongest rolling annual total return since early 2023.

3. Tenant demand now exceeds pre-pandemic levels

The income growth side of the ledger has been driven by strengthening tenant demand. Remote work did have a significant impact on occupied space in 2020, however demand has been increasing for nearly five years now. The recovery is even more impressive when split by asset quality – prime grade assets have recorded demand growth of +11% over the last five years, while demand for space in secondary assets contracted by -9%.

4. Rents are growing in most markets

Stronger tenant demand has flowed through to rents. Over the last five years, rents have increased in every major CBD market except Melbourne. Consequently, annual national CBD rent growth has been outpacing inflation since September 2024. Additionally, prime incentives are significantly higher than the long-term average in every major market, suggesting there is scope for them to fall if leasing conditions remain favourable. Decreasing incentives would provide a tailwind for income growth.

5. Future supply risk is lower than average

Construction is prohibitively expensive and new developments are very rarely “stacking up” in the current environment. With few projects breaking ground, the supply of CBD office space is expected to increase by only +0.3% p.a. to 2030, well below the long-term average annual rate of +1.1% and significantly lagging white collar jobs growth. A constrained supply pipeline should put downwards pressure on vacancy rates, supporting the sustainability of the recovery and the outlook for rent growth.

Heading in the right direction

While the turnaround of a real estate sector doesn’t happen overnight, multiple metrics show office is improving. For some, fear of catching a falling knife is turning into fear of missing out on the recovery upswing. With dual levers of stronger demand and weaker supply boding well for a tightening of vacancy and continued rent growth, office has every chance of topping the investment return table over the coming year.

Cromwell analysis of MSCI data (Jun-25)

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October 30, 2025

September 2025 quarter ASX A-REIT market update

Stuart Cartledge, Managing Director, Phoenix Portfolios

Market Commentary

The S&P/ASX 300 A-REIT Accumulation Index rose 4.8% over the September quarter, marginally underperforming the broader equity market, with the S&P ASX 300 Index returning 5.0%.

Most companies under coverage reported full financial year results to 30 June 2025 during the period. Broadly speaking results were solid. Headwinds of higher interest rates and subsequent asset devaluation appear to be a thing of the past, with forecast finance costs stabilising and valuations growing in line with rent growth. This is resulting in expectations of growth in funds from operations (FFO) and dividends per security moving forward.

The benchmark was dragged lower by Industrial heavyweight Goodman Group (GMG), giving up recent gains due to underwhelming forward guidance presented at its full year result. It closed the quarter 4.3% lower. Alternatively, the more conducive local market environment helped other property fund managers. Both Charter Hall Group (CHC) and Centuria Capital Group (CNI) reported that many of their investment channels are opening, most notably property syndicates sold to retail investors. CHC posted a solid result, with full year funds under management growth driven by capital expenditure and development activity. Moreover, forecast earnings per security growth of 10.6% exceeded expectations. CHC finished the quarter 18.6% higher. Similarly, CNI shook off concerns of a more challenging real estate cycle, with their largest property syndicate yet receiving strong demand. CNI also guided to earnings per security growth of 10%. The company’s share price jumped 31.2% higher in the September quarter.

Owners of shopping centres performed strongly over the period. After facing a more challenging backdrop, shopping centres are now operating in a supportive environment, with lower interest rates translating into consumer confidence and increased spending. Both Scentre Group (SCG) and Vicinity Centres (VCX) showed specialty sales growth that improved through every quarter of the financial year. Both also indicated strong outcomes continued into July and August. SCG gained 17.1%, while VCX rose 4.5%. Both now trade at a premium to net tangible asset backing, a scenario that seemed highly implausible not long ago. Similarly, owners of smaller neighbourhood shopping centres performed well, lifted by similar drivers. Region Group (RGN) added 8.6% and Charter Hall Retail REIT (CQR) finished the period 9.2% higher.

Office property owners mostly performed well in the quarter however performance was somewhat divergent amongst peers. It appears as if capitalisation rates have stabilised, face rents are growing slowly, and incentives have begun to decline. Despite this, most new office leases still require incentives of more than 40% of net rent to be paid, with demand highly varied, even within submarkets. Cromwell Property Group (CMW) led the way, up 36.0%, with a new large shareholder on the register. GPT Group (GPT) and Growthpoint Properties Australia (GOZ) both performed well, gaining 11.0% and 10.3% respectively. Dexus also outperformed the broader market adding 8.0%, in what was a reasonably tumultuous period for its funds management business. Mirvac Group (MGR) lagged the pack but still added 3.2% over the quarter.

Ongoing house price growth around the country supported residential property developers during the period. Perth-based developers performed particularly well, with Finbar Group (FRI) rising 25.7% and Peet Limited (PPC) up 20.6% as financial results and forward outlook for the companies remained strong. Stockland also rose sharply, gaining 14.2%, presenting a rosy outlook for ongoing growth. Aspen Group (APZ) also continued its move higher, benefitting from major index inclusion. It finished the quarter 18.5% higher.

Market outlook

The listed property sector is in good shape and provides investors with the opportunity to gain exposure to high quality, institutionally managed, commercial real estate, with projections of solid prospective growth. While share market volatility may be uncomfortable at times, the offset is liquidity, enabling investors to rebalance portfolios without the risk of being trapped in illiquid vehicles.

Property, both listed and unlisted, is a particularly interest rate sensitive sector. In recent years interest rates rose off generational lows, providing a headwind for real estate returns and valuations. The Reserve Bank of Australia has now reduced its Cash Rate Target three times since February 2025, providing a more supportive environment for real estate securities. The August reporting season reflected this, with companies under coverage providing solid updates, valuation growth and an expectation of liquidity returning to the property transaction market. Long term valuations are driven by “normalised” interest costs, meaning the impact of short-term hedges maturing is mostly immaterial.

The industrial sub-sector continues to show strong absorption of relatively high levels of supply, aided by the tailwinds of e-commerce growth, the potential onshoring of key manufacturing categories and the decision by many corporates to build some redundancy into supply chains to cope with current disruptions. All of these factors are contributing to ongoing demand for industrial space, albeit the previous period of market rents expanding rapidly appears to have dissipated. Vacancy rates remain near historic lows of around 2% in many markets. While rental growth has recently cooled, construction costs remain elevated, making additions to supply difficult and thereby prolonging conditions.

We remain cognisant of the structural changes occurring in the Retail sector with the growing penetration of online sales and the greater importance of experiential offering inside malls. Recent performance of shopping centre owners has however been strong, with consumers showing resilience and share prices moving higher, with some trading at meaningful premiums to net tangible asset backing. Importantly, we are also now seeing positive re-leasing spreads in shopping centres, indicating strengthening demand from retail tenants. These outcomes are no doubt aided by minimal vacancy across retail portfolios.

The jury is still out on exactly how tenants will use office space moving forward, but demand for good quality, well located space remains solid and there is growing momentum from companies to get staff back into the office. Leasing activity is beginning to pick up, and transactional activity is also returning, with discounts to book values materially reduced. Incentives on new leases remain elevated. At this stage demand for office space appears to be highly variable depending on location, even within submarkets.

We expect to see limited further downside to asset values in office markets but elsewhere expect market rent growth to drive valuations higher as capitalisation rates appear to have stabilised. Listed securities provides exposure to such growth.

The content above is taken from the Cromwell Phoenix Property Securities Fund quarterly report. Sign up here to be the first to access the latest report and to gain a deeper insight into the Fund’s performance.

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October 29, 2025

September 2025 direct property market update

Economy

Political uncertainty in the US was a defining theme over the last quarter, and it came to a head on October 1st as funding lapsed and the Federal government shut down, fuelling uncertainty over fiscal discipline and delaying key economic data releases. The shutdown became the longest in history, ending on November 12th after 43 days of disruption. As expected, the episode had limited impact on Australia.

Back home, a number of data prints indicated inflation and growth are both running a touch hotter than expected. The September quarterly CPI increased to 3.2% on a 12-month basis¹, rising above the upper bound of the RBA’s target band. While the result was skewed higher by some volatile items like fuel, and administered prices such as utilities and property rates, the breadth of categories running above 3.5% year-on-year suggests some inflationary pressures remain in the domestic economy.

While households’ financial position has been improving, rising cautiousness and a greater degree of saving (rather than spending) threatened to dampen Australia’s economic growth recovery. Those concerns were somewhat allayed by the latest print of the Westpac-Melbourne Institute Consumer Sentiment index which surged by +12.8% to 103.8, marking the first time it has sat in positive territory since early 2022².

Similarly, the unemployment rate fell from 4.5% to 4.3% in October, unwinding the increase seen in the previous month. The result was underpinned by the creation of 55,300 full-time jobs and an unchanged participation rate³. The RBA would have likely welcomed the outcome, which helps avoid the tension that would come with a deteriorating labour market at a time of sticky inflation.

Following the latest data releases, markets now believe the RBA’s easing cycle has concluded, with no further cuts priced in over the forecast horizon⁴. Economists largely agree, however some forecasters still expect a rate cut in the first half of 2026.

Taken together, economic data suggests Australia is on track and in a better position than most countries. The key question is whether the RBA will leave monetary policy settings in restrictive territory for too long, however the Board is cognisant of the risk and will be guided by the data.

Office

The office sector’s gradual recovery continued, with net demand for space expanding by nearly 57,000 square metres (sqm) over the quarter. Sydney CBD again saw the biggest absolute increase in demand (36,000 sqm), while the 25,000 sqm of net absorption recorded in Brisbane CBD represented the strongest growth on a percentage basis. Sydney’s demand was led by prime stock and the Western Corridor, a precinct which struggled through the pandemic but is now attracting tenants centralising from other markets (particularly north of the bridge). Brisbane’s strong quarter was more broad-based, with occupied stock increasing across the quality spectrum. Occupied space contracted in Canberra, the worst performing market over the quarter, largely due to the consolidation of a federal government department.

Despite the positive demand result, the national CBD vacancy rate edged +0.1% higher to 15.1% due to weakening conditions in lower quality stock. Sydney was the only CBD market to record a decrease in vacancy rate, underpinned by the absence of development completions over the quarter. Four projects were brought to market in Melbourne CBD and pushed the vacancy rate up +0.4%, however it remains below the peak seen in December 2024. Adelaide saw the largest increase in vacancy as 50 Franklin St reached completion with space still unleased.

National CBD prime net face rent growth maintained its strong pace, increasing +1.2% over the quarter and +5.9% over the 12 months to September. Canberra recorded the strongest growth over the quarter despite its softening vacancy rate – there is significant variance in this market as tenants prioritise higher quality premises with strong ESG credentials in specific precincts. Growth in Brisbane CBD also continued at pace, reflecting favourable leasing conditions. Prime incentives increased slightly in Canberra, consistent with the shift to newly developed premises, but remained relatively unchanged across the other markets. The combination of solid face rent growth and stable incentives contributed to higher rents on an effective (incentive-adjusted) basis. This was the first quarter since June 2022 where net effective rents increased in all the major CBD markets.

Office transaction volume strengthened over the quarter to $1.3 billion, but this level remains below the long-term average. The biggest recovery was recorded in Melbourne, which was the top-performing market (by dollar volume) for the first time since September 2022. Similar to last quarter, a lack of large deals dampened the national volume figure. There was further evidence that the office valuation cycle is at, or close to, the bottom, with average prime yields unchanged in every CBD market.

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Retail

The ABS ceased publication of the Retail Trade series after the June release. While this reduces the granularity of retail data available, the Household Spending Indicator series still provides a solid read on consumer activity. Supportive conditions maintained the pace of spending growth over the quarter. Groceries continued to record stronger growth than discretionary categories, such as Clothing, while the mining states of Western Australia and Queensland continued to outperform New South Wales and Victoria.

Supply remains very constrained, particularly at the “big end of town”. There was no Regional shopping centre stock added for the fifth consecutive quarter, while a single Sub-Regional centre reached completion. Development of Neighbourhood centres is more pronounced, with annual stock growth running at 1.3% as at September. However, this is consistent with the delivery of new centres in population growth corridors and is still less than half the rate of growth averaged over the last 20 years.

This lack of supply is contributing to solid rent growth. On a net basis, Regional rents have grown 0.9% over the past year, outpacing Sub-Regionals and Neighbourhoods. Similar to office, Sydney and South-East Queensland recorded the strongest retail rent growth over the quarter.

It was another solid quarter of retail transaction activity with dollar volume totalling over $2.1 billion. The result was underpinned by Regional centres, as partial stakes in Bankstown Central and Westfield Chermside changed hands. Large Format activity was also elevated, headlined by the portfolio sale of six Bunnings assets by Wesfarmers. Neighbourhood centres saw slightly less activity than normal, while no Sub-Regional or CBD assets transacted. There was a moderate level of yield compression recorded over the quarter, led by Sydney which is typically the bellwether market for capital. Neighbourhoods tightened the most nationally, as investors continue to be attracted to convenience assets aligned to non-discretionary spending. Perth was the only market where yields were unchanged across every core shopping centre type.

Industrial

Occupier take-up (gross demand) was largely in line with last quarter, totalling just over 823,000 sqm. Demand for this quarter was less dominated by a single tenant movement, with the largest leasing deal comprising just over 36,000 sqm of space. Transport & Warehousing was the main driver of the result with over 300,000 sqm of gross demand recorded, while a pickup in Manufacturing leasing helped offset weaker demand from Retail & Wholesale Trade. On a geographical basis, the result was largely consistent with last quarter – Sydney the most active market followed by Melbourne and Queensland.

Rent growth improved slightly on last quarter, averaging +0.8% nationally over the three months to September. Sydney was the top-performing market, with its Inner West precinct recording the strongest growth nationally (+3.5%) and the Outer Central West precinct also recording robust quarterly growth of +2.0%. Adelaide saw strong growth across its southern precincts and remains the top-performing market on an annual basis. Prime incentives increased in every Melbourne precinct, dragging effective rents lower, but were largely unchanged across the rest of the markets.

Delivery of new supply almost halved compared to last quarter, with less than 414,000 sqm of space brought to market nationally. This was the lowest quarter of supply since March 2023 and the most muted 3rd quarter since 2021, with limited completions in Brisbane and a lack of large projects the key drivers. Sydney and Melbourne accounted for 79% of supply over the quarter, a greater proportion than is typical. There is currently nearly 750,000 sqm of space under construction and due to complete in 2025, however, actual delivery may slip into subsequent periods given construction delays are persisting.

Industrial transaction volume strengthened further over the quarter, totalling nearly $3.5 billion across 102 deals. This was the highest number of deals conducted in a quarter since the data series commenced. Sydney and Brisbane were the standout markets, accounting for 60% of dollar transaction volume. The largest transaction of the quarter was Goodman’s acquisition of a 196-hectare site near the under-construction Western Sydney International Airport for around $575 million. While capital continues to prioritise Sydney, Perth was the market which saw the largest compression in yields (-25bps in every submarket). Brisbane also continues to be viewed favourably, with yields compressing in every submarket by 13-20 basis points.

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Outlook

Trade policy uncertainty remains a headwind for investor confidence. While the global economy is gradually adapting to the current tariff settings, lower courts have ruled the measures illegal. The Supreme Court is set to hear the case from 5th November, with a final ruling likely in early 2026. If the Court upholds the lower-court decisions, the Trump Administration is expected to explore alternative legal avenues to re-establish the tariffs. In practice, the near-term economic impact may be limited, but the ongoing legal and policy uncertainty is likely to keep risk sentiment cautious until the issue is resolved.

Australia is somewhat insulated from the impacts of global volatility, including the most recent tit-for-tat escalations between the US and China. The key considerations domestically are the trajectory of services inflation and the willingness of the RBA to step in and stimulate activity if the labour market deteriorates more quickly. The economy is beginning to transition from public-led growth to private sector investment, but a more supportive monetary environment may be required to maintain momentum.
The commercial property market continues to stabilise, with improving sentiment evident in both capital flows and leasing fundamentals. Construction remains prohibitively expensive in most circumstances, cramping development pipelines and supporting the outlook for existing assets. Office appears to have reached an inflection point, while retail and industrial pricing continues to firm. As confidence returns to the asset class and institutional capital re-engages, identifying compelling opportunities will increasingly depend on a deep understanding of asset quality and positioning.

Footnotes

Cromwell analysis of ABS data (Nov-25)
Westpac-Melbourne Institute (Nov-25)
ABS (Nov-25)
ASX (Nov-25)

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August 8, 2025

Stock in Focus – BWP Trust

No More Bunnings Snags!!!

Phoenix Portfolios Managing Director, Stuart Cartledge

Phoenix has long discussed the importance of assessing governance in its investment process. The much-repeated Charlie Munger quote “show me the incentives and I will show you the outcome,” rings as true today as when he first said it. As such, we have maintained a preference for internally managed vehicles over those managed externally by fund managers focused on growing their funds under management. In June, BWP Trust (BWP) announced a major transaction, comprising the internalisation of management, along with a lease reset for many of the Bunnings tenanted properties owned by the trust. These interlinked transactions removed two of the key “snags” that were holding back our investment in the stock.

Snapshot

Key update
In June, BWP Trust announced two major changes:

Internalisation of management – Ending its external management by Wesfarmers, BWP paid $142.6 million (10.6x FY26 EBIT) to take control.
Lease reset – Extended lease terms on 62 Bunnings properties, increasing the WALE from 4.6 to 9.5 years, boosting property value by an estimated $50 million.

Why it matters

Better alignment: Internal management means decisions now serve unitholders directly, as opposed to serving the dual interests of unitholders and the external manager.
Cost savings: Expected to save over $5 million annually, with 2% dividend accretion in FY26.
Improved asset quality: Longer leases make properties more attractive and saleable.
Capital investment: $86 million committed to property upgrades, with $56 million rentalised and $30 million co-funded with Bunnings.

Valuation and outlook

BWP now trades at $3.52/unit, a 7% discount to its pro-forma NTA of $3.79/unit.
Historically traded at a premium due to strong tenant (Bunnings) and reliable dividends.
Due to the above changes, Phoenix has started buying BWP units again.

A brief history

BWP conducted an initial public offering (IPO) in 1998, initially comprising 16 hardware retail properties tenanted by Bunnings Warehouse and 4 properties under development, to be tenanted by Bunnings. These properties were vended into the trust by Wesfarmers, the owner of the Bunnings Warehouse business. 99 million units were to be issued to public shareholders, with 33 million units subscribed to by Wesfarmers, all at an offer price of $1.00 per unit. Of the 20 initial properties, 15 are still owned by BWP. Their valuation has increased from $133.1 million to $644 million today, representing growth of 6% per annum. The IPO portfolio was vended to BWP at an initial yield of ~9.0%, whilst the most recent valuation showed a capitalisation rate of 5.4%. Despite this, much of the value appreciation has been driven by rent growth, with increases in rental payments growing 4.3% per annum for the properties held since IPO. Returns to shareholders have also been solid, with BWP producing a total return of 11.8% per annum since IPO.

It is not only per share metrics that have grown. The units on issue have grown to 713.5 million, increasing more than 4x when compared to 1998. Much of this equity issuance did occur in capital raises above, or near net tangible asset backing. This growth may well have served BWP unitholders well, diversifying the portfolio and creating a more relevant entity, but it is worth acknowledging that on a per share basis, unitholders would have done perfectly well merely holding onto the initial portfolio. It is not questionable that the external manager of BWP, Wesfarmers, has very clearly benefited from this growth, as the recent transaction proves.

These interlinked transactions removed two of the key “snags” that were holding back our investment in the stock.

Coming to today

How much has Wesfarmers benefitted from BWP’s growth? In June, BWP announced it would internalise management of the company, paying Wesfarmers $142.6 million, representing 10.6x the management company’s estimated 2026 Financial Year (FY26) earnings before interest and tax (EBIT). In FY26 this will produce cost savings to BWP of more than $5 million, however this likely understates the true savings, as this includes transaction costs (associated with this deal) and does not include benefits of additional scale. The deal is also 2% accretive to the FY26 dividend. As fees are charged as a percentage of assets under management, growth under the old structure would naturally lead to an increase in management costs. Adding an additional Bunnings property to an internally managed vehicle, however, should barely make a difference to administration costs. This creates a better alignment of interests, meaning any decision to grow is more likely to be solely in the interests of unitholders, as opposed to serving the dual interests of unitholders and the external manager.

Connected to this deal is the announcement of an extension and reset of the lease terms of 62 Bunnings leases. This increases the weighted average lease expiry (WALE) of Bunnings tenanted properties owned by BWP from 4.6 years to 9.5 years. An independent expert has assessed that this is likely to increase the value of the properties owned by BWP by ~$50 million. This may understate the true value uplift as it does not directly consider the optionality inherent in the leases. Bunnings tend to have options embedded in their leases to extend the lease. The options have a cap and collar of 10%, meaning the rent can only increase or decrease as much as 10% upon option exercise. As Bunnings controls the option, they will likely exercise it on any strongly performing stores and likely won’t on any underperforming stores, which are more likely to be in inferior locations. With the WALE having decreased to 4.6 years this was a key concern. The lease extension does not extinguish this concern, however, it does push it out 5 years. Additionally, Bunnings properties with longer WALEs are meaningfully more saleable, with recent transactions very supportive of independent valuations.

The final element of the transaction is a commitment to capital expenditure by BWP. $56million of this is to be rentalised at a fair rate, whilst an additional $30million will be equally and jointly funded by BWP and Bunnings to improve some older properties. This amount won’t be rentalised, however should support asset values and prove a commitment by Bunnings to stay in that space.

What to do about it?

For much of its history, BWP has traded at a premium to its net tangible asset backing. A strong, prominent covenant and steadily growing dividends attracted a large retail shareholder base to the stock, supporting valuation over time. Given elevated share prices, along with an awareness of negative optionality and an external management structure with poor incentives, Phoenix has very rarely held any position in BWP¹. As at the end of June, BWP traded at $3.52 per unit, approximately a 7% discount to the pro-forma net tangible asset backing of $3.79 per unit. The capitalisation rate used to deduce this value compares favourably to recent transactions. All told, this transaction removes two “snags” with investing in BWP. Namely, a relatively short WALE, creating a large degree of uncertainty in the short to medium term and perhaps more importantly, aligns incentives between BWP’s management and those of independent unitholders². Phoenix has also been impressed with the quality of BWP management and board members and the transactions they have undertaken.

Given this and the stock’s reasonable valuation, the portfolio has begun purchasing BWP units for the first time in a long time. Owning a rock solid portfolio of properties leased to one of the strongest tenants in Australia, with a strong, efficient and aligned management team, at a discount to somewhat conservative independent valuations, seems like a worthy investment.

¹ Phoenix has briefly held positions in BWP in times of temporary weakness, but quickly reduced the position as it returned to fair value.

² The proposed remuneration framework laid out in the meeting booklet is top quartile for property companies under coverage, with remuneration outcomes closely linked to shareholder returns.

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August 8, 2025

Stock in Focus – Hammond Manufacturing

Jordan Lipson, Fund Manager, Cromwell Phoenix Global Opportunities Fund

More than 100 years ago, Oliver Hammond was on the way to supporting a nine-person family in a small house behind train tracks in Guelph, Ontario, Canada. Seeking to improve the family’s life, Oliver set up a pedal-powered lathe in a backyard shed. Oliver and his two sons worked in the business until Oliver’s early death, at which point his wife, Lillian, continued the business with her sons and daughters. Foot power soon gave way to electricity, and the company, then known as O.S. Hammond and Son began producing radio sets, battery chargers and related devices.

Snapshot

Background

Founded over 100 years ago in Guelph, Ontario, Hammond Manufacturing (HMM) started as a family-run business making radio sets and battery chargers. Today, it focuses on electrical enclosures, racks, and cabinets. In 2001, the company split into two:

HMM (enclosures) with Robert Hammond as Chair and CEO and controlling shareholder of HMM
Hammond Power Solutions (HPS) (transformers) with William Hammond as Chair and controlling shareholder of HPS

Both are listed on the Toronto Stock Exchange and serve similar markets, but their valuations differ significantly.

Valuation gap: HMM vs. HPS

HPS: Market cap over $1.5 billion¹, trades at 17x earnings, with strong investor relations and analyst coverage.
HMM: Market cap just over $100M, trades at 6x earnings, with minimal investor outreach and limited public float (40% owned by CEO Robert Hammond).

Despite HMM’s solid growth (10% revenue and 25% EBIT CAGR over 7 years), it remains undervalued.

Strengths of HMM

Conservative, long-term focus: CEO Robert Hammond emphasizes security and stakeholder value.
Customer-first approach: High inventory levels and custom solutions ensure fast delivery and strong relationships.
Property ownership: Owns over 500,000 sq ft of facilities, held at depreciated cost—adding hidden value.
Clean financials: Transparent reporting and disciplined capital allocation.

Valuation potential

Comparable company: Nvent (owner of Hoffman, HMM’s main competitor) trades at 18x EBITDA.
Recent deal: Nvent bought Trachte (similar business) for 12x EBITDA.
If HMM were valued similarly, its share price could be 4x higher.

Outlook

HMM trades at a deep discount to both earnings and book value.
While a takeover is unlikely (due to Robert Hammond’s conservative approach), the business is well-positioned for long-term value creation.
Investors may need patience, but the current price offers a compelling opportunity.

1 All currency in this commentary refers to Canadian Dollars unless otherwise noted.

In the 1930s, Hammond created its first electrical racks and cabinets, the products that make up the core of Hammond Manufacturing’s business today. With the exploding demand for electrification in the 1950’s and 1960’s, Hammond became a meaningful supplier of electrical transformers, alongside its enclosures, racks and cabinets. In 2001, the business was split, with the transformer division spun into a new company, Hammond Power Solutions (HPS), and the enclosures business remaining with Hammond Manufacturing (HMM). Robert Hammond is Chair and CEO and controlling shareholder of HMM, while William Hammond is Chair and controlling shareholder of HPS. Both businesses are listed on the Toronto Stock Exchange, serve similar end markets and have similar growth drivers, yet their valuations could not be more different.

A tale of two Hammonds

HPS has unequivocally delivered great results in recent times, with growth driven by demand from data centres as well as other industrial applications. HPS also has a highly professional investor relations function, with detailed quarterly results presentations, slick ESG reporting and analyst coverage by major Canadian investment banks. HPS has been rewarded with a fair valuation. It has a market cap above $1.5 billion¹ and trades on a price to earnings ratio above 17x. While HMM’s business hasn’t quite kept pace with HPS’s eye watering growth, over the past seven years it has grown revenues at approximately 10%
per annum and earnings before interest and tax (EBIT) at a rate of approximately 25% per annum. For all this good work, HMM has been “rewarded” with a price to earnings ratio of approximately 6x. HMM’s market capitalisation is just above $100 million, and shares are almost 40% owned by Robert Hammond leaving limited free float, partly explaining the cheap valuation. Furthermore, HMM’s investor relations function is almost non-existent, with a website out of the early 2000s and major updates from the Chairman limited to concise yearly letters in a mostly black and white annual report. As an example,
the entirety of the most recent letter can be seen here.

The lack of shiny presentations is not of concern. The financial statements are remarkably clean and understandable, and capital allocation priorities are clear, reasonable and focused on long term stakeholder outcomes. This is preferable to well marketed presentations, with highly adjusted earnings figures, which do not resemble the earnings power of the business. Despite this, it may in part explain some of HMM’s cheap valuation.

A safe and secure business

Despite the fast pace of growth, Robert Hammond values running a secure, conservative business. He ends each yearly letter stating, “we continue to build long term security and success for all our associates”. Still retaining family business values, there is a focus on promoting within and allowing “associates” to build a career at HMM. As Robert Hammond describes, “Grandma Lillian” taught the importance of customer service excellence and making your word your bond. This can be clearly seen in the strategy of HMM. It maintains significantly higher inventory levels than competitors so customers can receive their mission critical products in quick time. This held the company in relatively good stead during the COVID-affected period when supply chains came under pressure and demand meaningfully accelerated. The customer focus can be seen in the hands-on customisation options provided to customers and deep relationships with distributors, with sales staff even going on some distributor’s podcasts to spruik their wares.

Beyond this, HMM owns most of its manufacturing and corporate property footprint. This property is held at depreciated cost on its balance sheet. These properties have been acquired over a long period of time, including its main facility and corporate head office in Edinburgh Rd, Guelph, which was built in 1953. More recently, a 97,000 square foot facility was built when it became clear the existing production facilities were a constraining factor to the business. The property portfolio totals more than 500,000 square feet. HMM trades at a discount to its unadjusted book value, however applying a (very) conservative Despite the fast pace of growth, Robert Hammond values running a secure, conservative business. He ends each yearly letter stating, “we continue to build long term security and success for all our associates”. Still retaining family business values, there is a focus on promoting within and allowing “associates” to build a career at HMM. As Robert Hammond describes, “Grandma Lillian” taught the importance of customer service excellence and making your word your bond. This can be clearly seen in the strategy of HMM. It maintains significantly higher inventory levels than competitors so customers can receive their mission critical products in quick time. This held the company in relatively good stead during the COVID-affected period when supply chains came under pressure and demand meaningfully accelerated. The customer focus can be seen in the hands-on customisation options provided to customers and deep relationships with distributors, with sales staff even going on some distributor’s podcasts to spruik their wares.

A comparison

The largest competitor to HMM’s electrical enclosure business is Hoffman, which is wholly owned by US-listed business Nvent. The enitre company has a market capitalisation of more than USD$12 billion and owns related businesses such as those that produce cable management and power management products. Nvent recently acquire Trachte, a business that manufactures control buildings, for USD$695 million, or a price of 12x its forecast earnings before interest, tax, depreciation and amortisation (EBITDA). The company was at pains to equate the quality of this business to its enclosures business, with the CEO stating, “these control buildings are essentially larger enclosures.” If HMM were to be valued at Trachte’s acquisition multiple its share price would be four times higher (without adjusting for HMM’s property ownership). Nvent itself is valued at an enterprise value to EBITDA ratio of approximately 18 times. Valuing HMM at this multiple produces silly outcomes for HMM’s potential equity returns. Nvent’s enclosure business does have higher earnings margins and return on assets than HMM, but much of this is attributable to the fact this segment does not include apportioned centralised costs. In addition, Nvent runs with a leaner inventory profile and does not own its property.

Nvent has refined its portfolio acquiring new businesses and selling those it that no longer fit into its “connect and protect” businesses. In Nvent’s most recent earnings call, its CEO stated, “And on the acquisition M&A pipeline question, I would like to say that where we play in this Connect and Protect space, it’s about a $100 billion opportunity. And remember, at $3-plus billion, we’re one of the larger players. So it’s very fragmented. And I think there’s a lot of opportunities.” HMM’s business would fit perfectly for Nvent’s desires, as there would no doubt be an abundance of synergies to extract. It is highly likely that this would be anathema to Robert Hammond, who prefers to run a more secure, but less efficient business focussed on all stakeholders, including customers and employees. However, it is likely that Nvent would pay many multiples of today’s share price to acquire HMM.

Where to from here?

These valuation exercises are important to do, but an instant realisation event is highly unlikely. HMM does however trade at a price to earnings ratio of approximately 6x and a meaningful discount to any assessment of true book value. These valuation levels imply the business is antagonistic to shareholders or that earnings aren’t sustainable. On the first count, Robert Hammond is a major shareholder and receives below market remuneration. He has also previously discussed that HMM shares are owned by hundreds of employees. On the second, while HMM’s end markets are very much cyclical, the business has produced operating profits each year since 2002 and is the beneficiary of some industries facing an elongated period of secular growth. One such example is the growth in data centre development.

All in all, it is hard to say when and if HMM’s shares will reflect fair value. Its management are long-term oriented and clearly care about all stakeholders. Similarly, precisely assessing HMM’s fair value is challenging and will likely be different to an acquirer, relative to a continuation of the status quo. What can be said is the current share price reflects a very meaningful discount to fair value. We will wait patiently for this value to be reflected while Robert Hammond and the HMM team work to make the business even more valuable in the future.

¹ All currency in this commentary refers to Canadian Dollars unless otherwise noted

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August 8, 2025

Strategic Asset Enhancement: Unlocking Long-Term Value at 400 George Street

Located in Brisbane’s prestigious North Quarter, 400 George Street is a 35-level commercial tower offering 43,978 square metre (sqm) of net lettable area across office, retail, and childcare. With an 89.8% occupancy rate supported by blue-chip corporate and government tenants, the building is a cornerstone of the precinct’s commercial landscape.

Now, with a lobby transformation underway, 400 George Street is entering a new phase of strategic enhancement—one designed to elevate its market positioning, continue to attract premium tenants, and unlock long-term value.

The refurbishment strategy

Scope of works:

400 George Street is undergoing a comprehensive redevelopment of its ground floor lobby, designed to modernise the space and elevate both its functionality and visual appeal. Key upgrades include a new street-facing entryway, an internal staircase and a new terrace, creating a more seamless and welcoming arrival experience.

The refurbishment will introduce flexible zones that support both informal and formal meetings, catering to the diverse needs of tenants. Additionally, a new 235 sqm food and beverage retail tenancy—featuring indoor and outdoor access—will be integrated into the lobby, enhancing social interaction and lifestyle convenience within the building.

Design vision

Led by renowned architects, Woods Bagot, in collaboration with Cromwell Property Group and Shape Australia, the lobby refurbishment is set to focus on creating a seamless, welcoming, and functional space. The vision is to emphasise connectivity, natural light and a premium finish. “The design concept is conceived as a landscaped garden portal which creates a unique urban subtropical experience that is enriched through the natural stone cladding, the generous landscape provision, and the integration of public art.”

The space is created with multi-purpose spaces for the modern working environment. “The flexibility of the modern working environment really questions the role that cities play, and the workplaces within them. So what we’re trying to do with the lobby is to create spaces for informal, formal, and serendipitous interaction”

Strategic value creation

Repositioning 400 George:

Rewinding the clock to 2009, to the time of construction, the North Quarter was an emerging precinct with limited amenities. A food court was installed on Level 1 to meet tenant needs, accessed via an escalator at the building’s entrance.

Today, the precinct is thriving, with abundant amenities and major occupiers like Suncorp, KPMG, Telstra, Microsoft and Santos. This evolution has enabled the transformation of the former level 1 food court into a purpose-built wellbeing and third-space. This upgraded area now includes a boardroom, training room, 200 sqm breakout/function space, multi-faith room, and 38 additional lockers—providing flexible environments for collaboration, learning, and reflection.

Complementing this is a class-leading end-of-trip facility, designed to support active commuting and wellness. Naturally lit and ventilated, the facility features 26 showers with Smart Fixtures, 530 lockers, 200 secure bike parking spaces, touchless entry, Dyson and GHD hair tools, a wellbeing room, and a dedicated yoga/workout space.

Together, these amenities are far better aligned with the expectations of the buildings occupants. They reflect a strong commitment to tenant wellbeing and sustainability both of which are increasingly recognised as key drivers of leasing decisions. As highlighted in JLL’s Tenant Perspectives 2024, organisations are prioritising high-quality, ESG-aligned workplaces that support employee experience, operational efficiency, and long-term business goals.

With key leasing milestones on the horizon in 2025 and 2026, the timing of the lobby refurbishment is strategic. It ensures the ground floor presentation matches the quality of amenity offered throughout the building and positions the asset competitively alongside Prime Grade offerings in the area. As part of the initial upgrade phase, the now-redundant escalator has been removed to create a more prominent and inviting street-level entryway—enhancing visibility, accessibility, and overall appeal.

Importantly, the refurbishment also plays a key role in repositioning 400 George Street as a premium commercial destination within Brisbane’s North Quarter. The upgrade aligns with broader precinct improvements, including the redevelopment of Roma Street Station, further enhancing the building’s connectivity, appeal, and long-term competitiveness.

Once complete, the lobby transformation will reinforce 400 George Street’s standing as one of the leading A-Grade assets in the precinct—delivering lasting value for tenants and investors alike.

Long-term benefits

Occupancy and rental growth

The lobby refurbishment is expected to play a key role in strengthening tenant retention by enhancing the overall experience and amenity offering. By delivering a premium arrival experience and modern, flexible spaces, the upgrade positions 400 George Street as a highly attractive option for tenants seeking quality and convenience in a CBD location.

JLL’s research shows that tenants are increasingly consolidating into prime-grade buildings to meet employee experience and sustainability goals. These improvements also create the opportunity for rental uplift, driven by enhanced presentation, upgraded facilities, and the introduction of prime retail space on the ground floor¹.

ESG and sustainability alignment:

400 George Street’s strong sustainability credentials—including a 5.5-Star NABERS Energy rating, 4.5-Star NABERS Water rating, and a 5.0-Star Green Star As-Built rating—continue to make it an attractive option for government and blue-chip tenants seeking environmentally responsible workplaces.

The lobby refurbishment further reinforces Cromwell’s commitment to health-focused design and urban sustainability. By integrating natural materials, enhancing access to daylight, and creating spaces that support wellbeing and social connection, the upgrade contributes meaningfully to the building’s ESG performance and long-term environmental goals.

Conclusion

The lobby refurbishment at 400 George Street is more than a facelift—it’s a strategic investment in the future of Brisbane’s commercial landscape. With visionary design and premium amenities, the project is set to elevate the building’s status and deliver long-term value to tenants and investors alike.

¹JLL. Tenant Perspectives 2024. Retrieved from jll-tenant-perspectives-2024.pdf

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August 8, 2025

Cromwell Unveils Landmark Project and Debt Refinance

Barton, ACT development

Cromwell Property Group (ASX:CMW) (Cromwell or The Group), announced on 11 July 2025 that it has entered into an agreement for lease with a Commonwealth Government entity to develop a 19,800 sqm office building in Barton, ACT. This project marks a significant milestone in Cromwell’s new strategic growth phase.

The six-level facility, designed to achieve a 6.0-star NABERS Energy and 6.0-star Greenstar rating, will be 100% occupied by a key Commonwealth Government department under a 15-year lease with an option for a 5-year extension, providing long-term income stability. The site is located in a premier location within the Parliamentary Precinct and enables the consolidation of multiple Commonwealth tenancies into a single building, close to important counterparts and Capital Hill.

Jonathan Callaghan, Cromwell CEO commented: “While broader market conditions have made new developments challenging, this project stands out as a compelling opportunity and is a strategic step forward after the completion of our business simplification process. The project will be led by Cromwell’s skilled inhouse Development team, ensuring the delivery of a top-of-the-line facility. With a long lease to the Australian Commonwealth Government, a AAA-rated, low risk tenant, this initiative is expected to drive strong returns.”

While the project will initially be funded by Cromwell, ultimately the outstanding quality of this project, and current lack of comparable opportunities, will make this asset very attractive to future capital partners as the Group transitions to a capital light investment management model.

The anticipated total cost of the development is $201 million. This includes land, construction costs, fees, finance costs, and a tenant incentive which is commensurate with market, to be taken in instalments during the delivery of the project. The projected yield on cost is expected to be greater than 6.3%.

Debt Refinance

Further positive steps forward since completion of the sale of the European platform include the renegotiation of our bilateral debt facilities, resulting in more favourable terms plus flexible covenants and longer duration. The renegotiation has resulted in a decrease in Cromwell’s weighted average drawn credit margin from 1.77% to 1.31%. Negotiation of this improvement in Cromwell’s debt terms was supported by the significantly reduced net debt and gearing position of the Group.

Gary Weiss, Cromwell Chair commented that “The journey to simplify Cromwell’s business has taken some time. We are pleased that the focus is now shifting to deployment of the Group’s strengthened balance sheet into careful and considered growth initiatives. Our business is ready and well equipped for the next stage of our journey”.

Market outlook

The listed property sector is in good shape and provides investors with the opportunity to gain exposure to high quality commercial real estate at a discount to independently assessed values. While share market volatility may be uncomfortable at times, the offset is liquidity, enabling investors to rebalance portfolios without the risk of being trapped in illiquid vehicles.

Rising interest rates have been a headwind for many asset classes, with property, both listed and unlisted, a particularly interest rate sensitive sector. In February, the Reserve Bank of Australia made its first cut to the cash rate target since November 2020, heralding a more buoyant environment for the property sector. The February reporting season also saw stocks providing solid updates, valuation stability and an expectation of liquidity returning to the property transaction market. Long term valuations are driven by “normalised” interest costs, meaning the impact of short term hedges maturing is mostly immaterial. A second 25bp interest rate cut was delivered in May 2025. Should current expectations for further interest rate cuts eventuate, the sector should perform well.

The industrial sub-sector continues to be the most sought after, given the tailwinds of e-commerce growth, the potential onshoring of key manufacturing categories and the decision by many corporates to build some redundancy into supply chains to cope with current disruptions. All of these factors are contributing to ongoing demand for industrial space, which has been evidenced by rapidly accelerating market rents and vacancy rates at historic lows of around 2% in many markets. While rental growth has recently cooled, construction costs remain elevated making additions to supply difficult and thereby prolonging robust conditions.

We remain cognisant of the structural changes occurring in the Retail sector with the growing penetration of online sales and the greater importance of experiential offering inside malls. Recent performance of shopping centre owners has however been strong, with consumers showing resilience and share prices moving higher. It is interesting to note the juxtaposition of very high retail sales figures despite very low levels of consumer confidence, no doubt impacted by rising costs of living. Importantly, we are also now seeing positive re-leasing spreads in shopping centres, indicating strengthening demand from retail tenants.

The jury is still out on exactly how tenants will use office space moving forward, but demand for good quality well located space remains solid and there is growing momentum from companies to get staff back into the office. Leasing activity is beginning to pick up, and transactional activity is also returning, with discounts to book values materially reduced. Incentives on new leases remain elevated.

We expect to see limited further downside to asset values in office markets but elsewhere expect market rent growth to largely offset cap rate expansion, particularly in industrial assets. Listed pricing provides a buffer to such movements.

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July 30, 2025

June 2025 quarter ASX A-REIT market update

Stuart Cartledge, Managing Director, Phoenix Portfolios

Market Commentary

The S&P/ASX 300 A-REIT Accumulation Index rose 13.4% over the June quarter outperforming the broader equity market, despite the S&P ASX 300 Index returning a creditable 9.5%. During the period, many of the global macroeconomic and geopolitical fears that were gripping the market somewhat dissipated, at least in terms of stock market returns.

The benchmark is dominated by Industrial heavyweight Goodman Group (GMG), which recovered strongly over the quarter, closing 21.0% higher, almost recovering to where it began 2025. The more conducive market environment also helped other property fund managers. Qualitas Limited (QAL), led the way, gaining 45.6%, despite limited company specific news. Solid residential house price growth is supportive of QAL’s business. Charter Hall Group (CHC) was also an outperformer, adding 20.1%. A more stable valuation environment and lowered macroeconomic concerns are a pleasant change for CHC’s business. Alternatively, HMC Capital Limited (HMC) was a meaningful underperformer, losing 18.1%, with ongoing issues across its healthcare property business, due to major tenant, Healthscope’s receivership process, along with a delayed settlement of a key asset that was to seed its Energy Transition business. The CEO of that business also departed HMC. It appears as if this will no longer be the growth driver for HMC, that was once anticipated.

Office property owners were underperformers in the quarter. Recently released external valuations saw limited movement for office properties, with the bulk of portfolios moving within a +/- 2% band. This was characterised by face rent growth offsetting a marginal expansion in capitalisation rates. Mixed rental data however tempered returns. Recent data showed the Melbourne CBD has had the strongest net absorption, but is facing the weakest effective rent growth, with a decline of more than 8% over the past 12 months. These stats were somewhat dominated by Coles planning a move of its head office from its current suburban location to an office building near Southern Cross Railway Station. Absorption numbers were less impressive in Sydney, however effective rents grew 10% over the year, driven by a reduction in incentives. Cromwell Property Group (CMW) lost 6.1% in the quarter, whilst Dexus (DXS) gave up 3.5%. Centuria Office REIT (COF) finished 2.2% higher and Perth-exposed GDI Property Group (GDI) rose 3.9%, still meaningfully underperforming the property index.

Shopping centre owners rose sharply in the June quarter, but still managed to underperform the index. Unibail-Rodamco-Westfield (URW) gained 12.4%, with a positive response to its investor day. Somewhat sadly for local investors, URW announced it would delist from the ASX. After a multigenerational run, this marks the end of offshore Westfield-branded shopping centres’ association with Australia. Locally, Vicinity Centres (VCX) moved 12.3% higher and domestic Westfield shopping centre owner Scentre Group (SCG) lifted 6.0%. Owners of smaller neighbourhood shopping centres also produced solid returns, with Region Group (RGN) up 9.7% and Charter Hall Retail REIT (CQR) adding 10.7%.

Uniformly positive house price growth around the country supported residential property developers during the period. Cedar Woods Properties Limited (CWP) jumped 36.6% higher, as it upgraded full year earnings guidance and restocked it land bank. Peet Limited (PPC) also outperformed, gaining 19.7%, supported by the announcement of a strategic review process. AV Jennings Limited (AVJ) rose 9.9% as it heads towards completion of its takeover. Finbar Group Limited (FRI) underperformed the index, up 0.7%, as its previously announced CEO transition occurred in June.

Market outlook

We remain cognisant of the structural changes occurring in the Retail sector with the growing penetration of online sales and the greater importance of experiential offering inside malls. Recent performance of shopping centre owners has however been strong, with consumers showing resilience and share prices moving higher. It is interesting to note the juxtaposition of very high retail sales figures despite very low levels of consumer confidence, no doubt impacted by rising costs of living. Importantly, we are also now seeing positive re-leasing spreads in shopping centres, indicating strengthening demand from retail tenants.

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July 24, 2025

June 2025 direct property market update

Economy¹

The June quarter was notable for its geopolitical instability, headlined by Israel’s strikes on Iran and the subsequent involvement of the US. While Iran’s parliament voted to close the Strait of Hormuz and impede oil supplies in retaliation, the closure has not been enforced, and Brent Crude prices are only 4% higher than a month ago¹ . Tensions have cooled to some degree and economic implications have been limited, however the situation could deteriorate and affect economic growth and/or inflation in the months and quarters ahead.

The other most newsworthy events, since our last market update, occurred after the completion of the June quarter – the RBA’s July rate decision and Trump’s ‘Liberation Day 2.0’. A cautious RBA elected to adopt a “wait and see” approach, going against market pricing and economists’ expectations to keep the cash rate steady at 3.85% in a split vote (6:3). The Monetary Policy Board wanted to see more evidence that inflation is likely to stay within the target band – namely June quarter CPI (released 30 July) and June employment data (17 July). These data points will be released prior to the next RBA decision in August and, absent a shock outcome, are expected to pave the way for the third cut of 2025. The market is now expecting 64bps of cuts over the remainder of the year².

In its decision statement, the RBA flagged elevated global uncertainty and the unknown final scope of US tariffs and associated policy responses – on this front, there has been little respite. Reciprocal tariff rates were set to come into force on 8 July (US time) following a 90-day suspension, however the pause was extended until 1 August. Adding to the complexity, Trump proposed several new tariffs in early July including a 50% tariff on copper imports, 200% on pharmaceuticals from countries with “unfair” pricing mechanisms, and 50% on all imports from Brazil. These measures do not distinguish between ally or foe, and while the announcements may be negotiating bluster, the resulting uncertainty further diminishes confidence in the US as a stable and reliable investment destination. Fortunately, the RBA has plenty of capacity to stimulate the Australian economy if this global uncertainty leads to softer domestic growth.

Fortunately, the RBA has plenty of capacity to stimulate the Australian economy if this global uncertainty leads to softer domestic growth.

Office

Analysis of JLL Research data indicates nearly 57,000 square metres (sqm) of positive net absorption was recorded across Australia’s major CBD markets in Q2 2025, marking the first quarter since 2021 where all markets saw demand for space grow. National CBD office demand has now been in positive territory for 11 of the past 12 quarters. Sydney CBD was comfortably the top performing market from a demand perspective, with 23,500 sqm of net absorption and 92,400 sqm over the last 12 months. Melbourne’s CBD benefitted from tenants centralising from Fringe markets, while the Brisbane CBD saw a number of large occupiers expand their footprint.

Despite the positive demand result, the national CBD vacancy rate edged 0.1% higher to 15.0% due to supply completions. Perth CBD saw the largest increase in total stock following Cbus/Brookfield’s completion of the premium development ‘Nine The Esplanade’. The rest of the increase in supply largely came from the Sydney CBD market, where a major refurbishment in Circular Quay and a luxury mixed use development were completed. While the vacancy rate increased in these two markets, the Brisbane and Adelaide CBDs both saw a tightening of 0.3% pts. In Canberra, the vacancy rate continues to vary significantly by precinct.

National CBD prime net face rent growth maintained its strong pace (+1.4%), taking annual growth to +6.0%. Brisbane recorded the strongest growth, reflecting the market’s low vacancy rate. Performance was also strong in the Melbourne CBD, where headline rents saw the biggest quarterly jump since 2019. Prime incentives were largely unchanged across all of the CBD markets, with Brisbane CBD (-0.3% pts) and Canberra (+0.3% pts) seeing the biggest movements. This resulted in effective rents – headline rents adjusted for incentives – growing most strongly in Brisbane and Melbourne.

Transaction volume fell to $0.9 billion for the quarter, representing the second-lowest June quarter result since the start of the data series (2007). The weak volume figure was due to a lack of major assets changing hands – the largest transaction this quarter was c$290 million, compared to more than $600 million last quarter. However, on a number of deals basis, this quarter saw more activity than last quarter. From a market perspective, Sydney CBD comprised the greatest share of national volume, while the Brisbane Fringe was the only market where volume exceeded the 10-year average.

There was further evidence that the office valuation cycle is at, or close to, the bottom. Average prime yields were unchanged in every CBD market except Brisbane, where a slight expansion of 6.5bps was recorded.

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Retail

Getting a read on the strength of the consumer has become more challenging over recent months, with Cyclone Alfred (March), and the unusual timing of the Easter/Anzac Day long weekends both introducing some noise in the data. Purchases of winter clothing supported growth in the most recent monthly data (May), however the pace of growth continues to lag expectations. With the RBA choosing to remain on hold, the drag of consumer pessimism may persist a while longer.

Positively for retail real estate, the biannual vacancy rate was largely unchanged over the last six months. Regional shopping centres saw vacancy decrease from 1.6% to 1.5%, while Neighbourhoods saw a significant decrease of 0.8% pts from December to June. These improvements were offset by a large increase in vacancy rate across the Sub-Regional centre type. From a market perspective, conditions tightened across every centre type in Sydney, while Melbourne was the main driver of higher Sub-Regional vacancy.

Supply remains muted with only 13,600 sqm of Neighbourhood space added to national core retail stock over the quarter. The limited supply pipeline is supporting retail fundamentals, however rents were largely unchanged over the latest quarter. On an annual basis, growth has been strongest in S.E. Queensland.

Retail transaction volume strengthened again over the quarter to total $2.4 billion. The resulted was buoyed by the Neighbourhood sub-sector which recorded its second biggest quarter of deal volume in history at just over $860 million. The elevated volume was skewed by the $450 million sale of St Ives Shopping Village, an unusually large transaction which included some adjoining residential properties and presents development potential. Large Format Retail continued to record elevated deal volume, with significant single tenant assets such as IKEA, Costco, and Bunnings, comprising the majority of this quarter’s activity.

Sub-Regional yields compressed across every market except S.E. Queensland. This centre type has seen the biggest recovery in yields since pandemic highs, and pricing is now approaching pre-COVID levels. Neighbourhood yields also decreased in Perth, while there was no movement across the Regional shopping centre type.

Industrial

Occupier take-up (gross demand) was in line with last quarter at nearly 800,000 sqm. Transport & Warehousing was the main driver of the result with over 300,000 sqm of gross demand recorded. It was also a solid result across Retail & Wholesale Trade, with demand underpinned by Kmart’s preleasing of a new major distribution centre at Sydney’s Moorebank Intermodal Precinct. This leasing deal contributed to Sydney demand outpacing its five-year average and comprising nearly 40% of national take-up. Perth was the only other market to outperform recent history, with a number of occupiers expanding into larger premises.

Rent growth slowed significantly over the quarter with 16 of 22 markets staying unchanged compared to March. All precincts across Sydney and Perth were flat, while the South East was the only sub-market in Melbourne where rents grew (+0.6%). Adelaide also only had one precinct record growth, the Outer North, which was the top performer nationally (+3.3%). Adelaide has comfortably been the top performing market over the last 12 months, but it was Brisbane that topped the growth charts in June with average growth across its three precincts rising to 1.8%. There was a slight increase in prime incentives in select markets along the East Coast.

Just over 800,000 sqm of supply was completed over the quarter, around 30% more than the quarterly average of the past five years. While supply was below average in Melbourne and Perth, Adelaide saw its second largest quarter of development in history. There is currently nearly 950,000 sqm of space under construction and due to complete in 2025. Even if all of these projects are delivered on time, 2025 will see the lowest level of new supply since 2021. Additionally, actual delivery may slip into subsequent periods given construction delays are persisting.

Industrial transaction volume strengthened after last quarter’s unusually soft showing, totalling over $2.4 billion across 90 deals. Brisbane was a standout as Chinese e-commerce giant JD.com made its first industrial investment in Australia – the Wacol Logistics Hub – for around $250 million. Adelaide also saw elevated transaction activity with the dollar volume running 33% higher than the quarterly average of the past five years. Strong demand for Brisbane assets was reflected in market yields, which compressed by 12-20bps across its three precincts. Perth saw the largest movement in yields with every precinct compressing 25bps, while Sydney and Adelaide also recorded some instances of compression.

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Outlook

The global economy moved from alert to alarmed when higher-than-expected tariffs were announced in early April. While the ultimate trajectory of trade policy remains a key uncertainty, market anxiety has eased somewhat in recent months as Trump has signalled a readiness to back down if economic conditions deteriorate too sharply. Economists now expect the worst-case scenarios to be avoided, however growth is forecast to be weaker than if trade destabilisation had not occurred.

Australia is somewhat insulated from the impacts of global volatility. Most attention domestically is focused on the RBA and its willingness to stimulate the economy. Growth green shoots were seen in 2024, but momentum has slowed, particularly in consumer-oriented sectors. If a more supportive monetary policy environment is not delivered soon, the transition of the economy from public sector demand to private business investment may become bumpy.

The commercial property market continues to stabilise, with improving sentiment evident in both capital flows and leasing fundamentals. Office appears to have reached an inflection point, while retail and industrial pricing continues to firm. As confidence returns to the asset class and institutional capital re-engages, identifying compelling opportunities will increasingly depend on a deep understanding of asset quality and positioning.

How did the Cromwell Funds Management fare this quarter?

Cromwell Direct Property Fund (DPF, the Fund)

The entire DPF portfolio underwent a valuation in advance of the Fund’s Liquidity Event. Compared to prior valuations completed between June and October 2024, the six directly held assets fell by 0.60%. Two assets saw an uplift and one remained flat, primarily due to strong rental growth across Queensland markets.

Considering DPF’s partial ownership of Energex House in Brisbane (Cromwell Riverpark Trust), and the ATO building in Dandenong (Cromwell Property Trust 12), the total change was just 0.90%. Energex House remained flat, while the ATO building declined by 13%, attributed to a 1% increase in the capitalisation rate. This adjustment was made by the independent valuer based on comparable sales evidence in the Melbourne office market.

As at 30 June, DPF’s portfolio, now valued at $537.2 million on a look-through basis, is 96.6% occupied with a weighted average lease expiry of 3.4 years.

Most assets within the DPF portfolio are multi-tenanted buildings, with a significant concentration located in Brisbane. In the current market, particularly in Brisbane, we continue to observe strong effective rental growth. The portfolio’s shorter Weighted Average Lease Expiry (WALE) presents a strategic advantage, enabling the Fund to capitalise on rental reversion opportunities as leases expire and are renegotiated.

This staggered lease expiry profile allows space to be progressively repriced to current market rates, supporting earnings growth. Additionally, the shorter WALE provides flexibility to reposition assets and attract higher-paying tenants, further enhancing the portfolio’s income potential and long-term value.

Just under half of the gross passing income is derived from Government and Listed companies or their subsidiaries. Cromwell’s asset management team have negotiated over 10,000sqm of leasing this financial year across 23 transactions, with several larger deals currently in advanced stages of negotiation. The largest completed deals occurred at 545 Queen Street in Brisbane, including a 6-year lease on over 2,100sqm to a new tenant, and a 2-year lease extension on 1,600sqm to an existing Federal Government tenant.

Cromwell Property Trust 12 (C12)

Cromwell Property Trust 12 is nearing the end of its second term in October this year. In September, investors in C12 will receive a Notice of Meeting and Explanatory Memorandum, which will propose an extension of the Fund’s term through to December 2027. The Explanatory Memorandum will contain market data and commentary to help investors decide whether they wish to extend the trust term or take the asset to market. The ATO building remains 99.3% leased, with only minor ground floor vacancy and a WALE of 5.1 years. Since its inception in 2012 with an initial portfolio of three assets, C12 has delivered strong performance. Despite recent valuation adjustments, the Fund has achieved an equity internal rate of return (IRR) of approximately 11.7%, reflecting its long-term success.

Footnotes

Cromwell analysis of MarketWatch data (9 July)
ASX (8 July)

About Cromwell Direct Property Fund

Read more about Cromwell Direct Property Fund, including where to locate the product disclosure statement (PDS) and target market determination (TMD). Investors should consider the PDS and TMD in deciding whether to acquire, or to continue to hold units in the Fund.

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